'Israeli Exports Missed the Boat to China'

Jerusalem bowed to American veto and doesn't provide support, say exporters.

How did it happen? Asia's economies are growing like weeds yet Israeli export to the region stagnated at 18% of total export, unchanged from the year before. How did Israeli industry miss the fast boat to China?

Sources at the Export Institute accuse the government of bending before American pressure regarding products China could use for military purposes, which has hurt exports. Under U.S. pressure following Israel's controversial 2005 sale of spy drones to China, Israel ruled that companies exporting products that could be used militarily need permission from the Export Control Department of the Defense Ministry.

Israeli exports to China grew by just 8% in 2007 to a billion dollars, though China's import of goods grew by 23% against 2006. Clearly Israel's exporters had missed an opportunity. "China is the world's second-largest economy from the perspective of purchasing power," says Shauli Katznelson, deputy manager of the Export Institute. It's en route to becoming the third-biggest economy, too: Its GDP is $3.3 trillion, three times that of India, yet China ranks 13th on Israel's exports list.

Hi-tech has done egregiously: Exports to China fell 9% in 2007 compared with the year before. In 2006, they'd inched up versus 2005, but remember that 2005 saw hi-tech sales to China tumble 25%. Non-tech exports to China actually grew 20% in the first nine months of 2007. What's the problem?

One is that hi-tech is afraid of losing American customers if it enters China. Selling to China could be a mark of Cain that would deter American customers, explains Katznelson. "I know of Israeli companies that negotiated with the Americans and at some point, walked away from the talks - they chickened out. As for military industries, forget it, they won't go near China."

Exporters support Katznelson's position. Ehud G. owns a company that makes components which can, indeed, be used for civilian or military purposes. His company started exporting to China a decade ago and gradually reached sales amounting to millions a year. Legally, the company was entitled to export to China. But it stopped as the Americans frowned. "The U.S. cast a veto and Israel bowed to it, though there hadn't been any American components in our product," says Ehud, costing Israel a massive market.

Another reason for the low Israeli export to China is that it's a tough place to do business. "The smaller the exporter, the harder it is, and Israel has mainly small companies," says Katznelson. American and German exporters tend to be vast enterprises, which makes all the difference. The Chinese don't need swim-by-night minnows with exports of say $50 million a year.

"They want a company's presence, not to do business by mail. How many Israeli companies can maintain a physical presence in China?" Katznelson asks rhetorically: Not that many.

Nor does Jerusalem support the exporters, while America has 200 representatives of the Department of Commerce over there supporting their boys and girls in business; Germany has 150 representatives and Israel has maybe three or four, Katznelson complains.

What can Israeli exporters do to change the situation? For one thing, ignore staples. Export products for the well-to-do, products which glisten with innovation and design, says Katznelson.

What sort of exports might those be? Think of exporting services,he suggests, especially given the situation of the commodities market. Think engineering services, homeland security services, medical and IT and remote education services. "The world is changing - and we must make sure not to remain outside the game. This isn't a problem that the market will solve by itself."